January 7, 2016 - GLOBAL ECONOMY - Billionaire financier George Soros is warning of an impending financial markets crisis as investors around the world were roiled by turmoil in China trade for the second time this week.
Speaking at an economic forum in Sri Lanka's capital Colombo, he told an audience that China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world, according to media. He added that a return to rising interest rates was proving difficult for the developing world.
The current environment reminded him of the "crisis we had in 2008," The Sunday Times in Sri Lanka reported on Thursday morning. "China has a major adjustment problem," he added, according to Bloomberg. "I would say it amounts to a crisis."
China's CSI 300 tumbled more than 7 percent in early trade Thursday, again triggering the market's circuit breaker. As well as roiling sentiment across Asia, it also battered European risk assets with the
German DAX down 3.5 percent at 11 a.m. London time.
U.S. stock index futures also indicated
a sharply lower open as investors focused on China's swooning currency and economic slowdown.
China, the biggest economic story of the last 30 years, has soured in the eyes of many analysts. A stock market crash that began in the country last summer has thrown the vast difficulties officials are now facing into sharp relief. A raft of data has disappointed in recent months as the country's leaders refocus the economy on consumption from manufacturing.
Analysts also point to concerns over Chinese market regulators, who they believe do not appear to have a good grasp of the market, even with the introduction of the circuit breakers. In an attempt to stabilize markets, China's securities regulator has issued new rules to restrict the number of shares major shareholders in listed companies can sell every three months to 1 percent.
Marc Ostwald, a strategist at ADM Investor Services, believes that Soros' comments —
alongside a gloomy report Wednesday from the World Bank — only serve to cast a "long shadow" over global markets.
"It should be noted that the current turmoil distinguishes itself from 2008, when reckless lending, willful blindness to a mountain of credit sector risks and feckless and irresponsible regulation and supervision of markets were the causes of the crash, given that central bank policies have been encouraged and been wholly responsible for the current protracted bout of gross capital misallocation," he said in a morning note. -
CNBC.
U.S. Stocks Pare Losses, Bonds Fall as Crude Rallies Above $34
The selloff in global shares that started after China cut the yuan’s reference rate by the most since August showed signs of easing as crude erased losses and China’s securities regulator
suspended a rule that’s exacerbated financial-market turmoil.
The Dow Jones Industrial Average recouped 200 points of a rout that neared 2 percent as crude oil almost erased a loss of as much as 5.5 percent. China’s weakening currency and tumultuous financial markets had fueled a flight from risky assets after shares there plunged 7 percent for a second time this week. Treasuries erased gains, while the yen reached a four-month high and gold surged on haven demand.
“Markets in China historically have had no correlation to their economy or our economy. This is a very emotional reaction and it’s becoming a somewhat absurd reaction,” said Howard Ward, who oversees $42.7 billion as the chief investment officer of growth equities at Mario Gabelli’s Gamco Investors Inc. “We’re going to err on the side of not being too concerned and not getting caught up in the mini-panic.”
Fresh concern that China’s slowdown will hamper global growth has wiped $2.5 trillion off the value of global equities this year, as the nation’s tolerance for a weaker currency is viewed as evidence policy makers are struggling to revive an economy that’s the world’s biggest user of resources. U.S. crude’s tumble toward $30 a barrel heightened fears of disinflation and fueled concern that junk-rated energy producers won’t be able to stay solvent.
Fears eased in U.S. morning trading as China’s leadership signaled it may reconsider or change the system for managing equity selloffs at the same time that crude in New York climbed back above $34 a barrel.
“Chinese equity markets are highly volatile right now and anything they do to potentially stabilize that market improves the outlook for U.S. equities,” Krishna Memani, chief investment officer at Oppenheimer Funds Inc. in New York, said by phone. “They don’t have a whole lot of experience controlling and monitoring markets and they’ve been going about it ham-handedly making the situation far worse than it needs to be.”
Stocks
The Standard & Poor’s 500 Index slid 0.8 percent at 11:04 a.m in New York, trimming a drop of 1.8 percent. The Dow fell 0.7 percent, clawing back from a 317-point slide to start the day.
China’s devaluation revived the angst that sent financial markets into turmoil last summer, driving U.S. stocks to three-month lows Wednesday in a selloff led by commodity producers.
Comments by billionaire George Soros exacerbated market jitters after he told an economic forum in Sri Lanka today that global markets are facing a crisis and investors need to be very cautious.
The Stoxx Europe 600 Index slid 2 percent. The rout this year in Europe
surpassed 5 percent, as Germany’s DAX fell below 10,000 for the first time since October. Companies with the most sales in China bore the brunt of the decline. Anglo American Plc tumbled and ArcelorMittal sank, dragging a gauge of miners to its lowest level since 2009. A measure of energy producers also fell to a near six-year low.
The MSCI Asia Pacific Index retreated 2.1 percent. Benchmark stock indexes in Australia, Japan, Singapore and Thailand all lost more than 2 percent.
China
The Hang Seng China Enterprises
gauge of mainland shares listed in Hong Kong tumbled 4.2 percent, its lowest close since October 2011. The Shanghai Composite Index tumbled 7.3 percent before trading was suspended. New circuit breakers, which kicked in on Monday, have been criticized by analysts for exacerbating declines as investors scramble to exit positions before getting locked in by the halts.
After the halt, the securities regulator announced rules to limit selling by major shareholders when a ban expires this week. Later, the regulator suspended a new stock circuit-breaker, signaling that the country’s leadership may reconsider or change the system.
Currencies
The yen, which has been the best-performing major currency so far this year amid the demand for safe-haven assets, rose as much as 1 percent to its strongest level since August versus the dollar.
The pound fell to the weakest level since June 2010, touching $1.4555. The U.K. currency slid 1 percent to 74.46 pence per euro. It has fallen every day this week against the dollar. Disappointing manufacturing and services data added to the view that the Bank of England will have to keep its benchmark interest rate lower for longer.
Commodities
The Bloomberg Commodity Index rose 0.6 percent, rebounding from what would have been the lowest close since 1999 as crude erased losses.
West Texas Intermediate crude rose 0.1 percent to $34 a barrel. Crude supplies at Cushing, Oklahoma, the delivery point for U.S. crude, climbed to an all-time high, government data showed Wednesday.
Copper retreated 2.7 percent in London to the lowest since Nov. 24 and zinc slumped 4.1 percent. Cocoa for March delivery fell for a fifth day to an eight-month low on ICE Futures U.S. in New York. Gold rose as much as 0.8 percent to a two-month high of $1,102.85 an ounce.
Bonds
Yields on 10-year Treasury notes rose two basis points to 2.19 percent after touching the lowest since October. Japanese government bond futures advanced to a record high after 30-year notes were auctioned at a higher price than dealers forecast.
Germany’s 10-year break-even rate, a gauge of the market’s outlook for inflation, tumbled to the lowest level since February amid concerns that the rout in commodity markets would subdue price-growth.
Emerging Markets
Energy producers led losses in developing-nation stocks, driving the MSCI Emerging Markets Index down 2.7 percent. Benchmark gauges in South Africa, Thailand, the Philippines and Abu Dhabi slid more than 2.5 percent and those for Saudi Arabia, Dubai and Qatar tumbled at least 3 percent. Russian markets were closed for a holiday.
A gauge tracking 20 emerging-market currencies dropped for a fifth day, headed for its longest losing streak since October. The currency in South Africa, which counts China as its biggest trading partner, tumbled 1.2 percent. Russia’s ruble slid 1.1 percent in offshore trading while Mexico’s and Brazil’s real slid at least 0.6 percent. -
Bloomberg.
China's 29 Minutes of Chaos: Stunned Brokers and a Race to Sell
Even by the rough-and-tumble standards of China’s stock market, it was a chaotic 29 minutes.
With share prices going into free fall almost as soon as local exchanges opened, market gurus at Huaxi Securities Co. were at a loss to explain why. One manager of $46 million in Shanghai liquidated all his holdings. Other investors, including a top-performing hedge fund, tried in vain to cash out as circuit breakers brought trading to an abrupt halt.
By 9:59 a.m. local time it was all over -- except that it wasn’t. Next came a torrent of calls from angry clients upset by the carnage in a week that’s seen two abbreviated trading sessions and a 12 percent tumble in the benchmark CSI 300 Index. And it’s only January 7th.
"We are dealing with a flood of angry phone calls from clients complaining about the market plunge and the circuit breaker," said Wei Wei, an analyst at Huaxi Securities in Shanghai. "We are also feeling at a loss and confused today as we didn’t quite figure out what was going on in the market."
There’s certainly an Alice-in-Wonderland quality to this week’s selloff, which has radiated across global equity markets and rattled investor confidence in the world’s second-largest economy. It’s not as if China’s growth story is over. True, the yuan is weakening and the economy is decelerating to its slowest annual pace since 1990, but that’s been known for some time. The currency is actually holding up well versus just about everything but the dollar, and analysts are predicting a 6.5 percent economic expansion this year.
Market Intervention
What does seem to worry investors is how deftly, or ineptly, Chinese authorities will manage a stock market that’s gone from boom to bust and back again more times in the past 12 months than most major peers do over the course of a decade. After policy makers took extreme steps to prop up shares last summer, analysts are struggling to gauge how Beijing will react to a renewed bout of volatility that threatens to weigh on business and consumer confidence.
Officials moved to act on Thursday by suspending the new circuit-breaker system, bowing to intense criticism. The rules, launched at the start of this year, were designed to kick in when there’s a 5 percent swing in the CSI 300. That halts trading for 15 minutes, with exchanges shutting for the rest of the day if the index moves by 7 percent, as it did on Monday and Thursday.
In a market with some of the world’s highest volatility, circuit breakers throw up a new wild card that the nation’s 99 million individual investors are still getting used to.
"It is clearly adding some unintended consequences, such as people trying to sell before the break, which is actually accelerating the decline," said Gerry Alfonso, a trader at Shenwan Hongyuan Group Co. in Shanghai. "Investors need time to adapt to the new rules. This type of development in a retail-driven market is bound to be challenging."
The decision to suspend the circuit breaker came hours after CSRC officials held an emergency meeting to discuss conditions on the nation’s tumbling stock market, according to a person familiar with the discussions who asked not to be named because he wasn’t authorized to speak publicly. Officials unveiled plans to curb share sales by major stockholders just a day before an existing ban was due to expire.
Abrupt Halt
Some investors had no choice but to sell on Thursday. Take Chen Gang, who helps oversee the equivalent of $46 million as the chief investment officer at Shanghai Heqi Tongyi Asset Management Co. Chen dumped his firm’s equity holdings and said he won’t get back into the market until regulators improve the circuit breaker system. Many private funds and hedge funds in China have agreements with investors spelling out mandatory liquidation levels if their holdings drop below a certain value.
“This is insane,” Chen said in an interview on Thursday. “We were forced to liquidate all our holdings this morning.”
Then again, Kelvin Tay, the regional chief investment officer at UBS Group AG’s wealth management business in Singapore, sees a buying opportunity. "This week has been a disaster" but "it’s fun in a perverse way," he said. "Investors need to separate the sound from the noise. This is an opportunity to pick up stocks that are undervalued."
Some other managers couldn’t sell fast enough. Jiao Ji, whose hedge funds averaged a 61 percent return during the $5 trillion summer rout after he
sold out before the crash, said the trading halts came so quickly that he didn’t have time to unload his holdings this time.
“It was quite abrupt on Monday, and it’s even more abrupt today,” said Jiao, the chairman of Sunrise Investment, based in northeastern China’s Jilin province. “There’s not even a chance for a rebound.” -
Bloomberg.
